SamPitrodacommitteerecommendations

BSNL is the seventh largest telecommunications company in the world providing a comprehensiverangeoftelecomservicesinIndiawithanequitycapitalofRs12000/crores, net assets worth Rs 88,000/ crores and a turnover of Rs 35000/ crores. Further, the company caters to 90 million customers, has 300,000 employees, 750,000 kms of optical fiber , a network of 40,000 towers, extensive urban ( except Mumbai and Delhi) and unparalleled rural coverage and many more unique assets and capabilities that offer significantpotentialforgrowth,revenuegeneration,valueunlockingandsocialrelevance.

Thiswhollyownedgovernmententerpriseisunderseverepressureandismaking losses for the first time due to increased competition, a declining fixed line market, antiquated processes and procedural bottlenecks especially related to purchase of equipment, bureaucratic and government dependent decision making system, lack of collaborative actions, large work force, regulatory changes, operational inefficiencies and otherinternalandexternalchallenges.

At a meeting chaired by the Prime Minister to review the functioning of BSNL in January 2010, it was agreed to set up a committee to examine the issues and submit recommendations within atime periodof one month. The Committee had three meetings and a series of major discussions with BSNL executives, Department of Telecom (DOT) leadingconsultants,investmentbankers,privatesectorrepresentatives,presentandformer employees of the company and others. During its consultations, the committee also reviewed hundreds of emails, individually and collectively. Based on these discussions, the committeestronglybelievesatthatitispossibletobringaboutaturnaroundatBSNLand onceagainpositionitisthedominantplayerintelecombyprofit,revenue,marketshare, technology,servicesandsocialrelevance.However,thiswillrequirevision,commitmentand supportfromthegovernmenttoimplementboldinitiativesandharddecisions.

Therecommendationsofthecommitteeneedtobeviewedagainstthebackdropof the market over the last five years where the Indian Telecom Industry has gone through a periodofintensetransformationoccurringthemultipledimensions

Mobiletelephonyhasleapfroggedfixedlinetelephonywithover550millionmobile Simconnectionsandincreasingcomparedto35millionlandlinesanddecreasing.

Telecomhastransitionedfromatechnologydrivenbusinesstocustomer CentricbusinessrequiringanorganizationalDNAofcustomercare.

Theindustryhasgonefrombeingamonopolytohypercompetitionwithoverten Operators.

Competitionisreducingprices,improvingtechnologyandintroducingnewbusiness Models.

Telecom is now becoming pervasive in India with far reaching implications in Governance,agriculture,education,health,defense,business,energy,infrastructure, finance,productivityefficiency,competitiveness,publicservicesetc., 2..

2 TheCommitteeRECOMMENDSTHEFOLLOWINGTOIMPROVEOVERALLPERFORMANCEOF BSNL

1.0

Enhance the quality of senior executives, the management team and the decisionmakingprocesstorespondtothecompetitivebusinessenvironment andthechangingmarketrealities. Focusonselectionofthebestprofessionalsfromthemarket,atmarketrates forhigherlevelmanagement,withrelevantexperienceanddomainexpertise (estimated around 3050). Internal candidates should be given equal opportunity,withoutanypolicyofpreferentialtreatment. Appointaneminentpersonfromtheprivatesectorwithstrategicvisionand thestaturetointerfacewiththeexternalenvironment,asthechairmanto focusonshareholdervalue.SeparatethepostoftheManagingDirector/CEO (FromCMD),whoshouldbeapersonwithrelevantdomainexpertise,with fullP/Lresponsibilitiesandautonomytomanagedaytodayoperations.This mustbedoneimmediately.Also,forefficientdecisionmaking,empowerthe MD/CEOwiththeabilitytoactasfastasthecompetition. Changetheboardcompositiontosevendirectors,oneinternaldirector(MD/ CEO), two government nominee NonExecutive Directors with relevant skill set,threeexternalindependentdirectorsofeminenceandrelevanceandthe non executive chairman. CFO and COO shall be prominent invitee to the Board. AllowtheMinistrytointeractonlythroughboardrepresentationandregular boardmeetingsandnotthroughdaytodaydecisionmakinginterfacingand supervision. AppointafulltimeChiefTechnologyOfficer(CTO),aChiefITOfficer(CIO),a Chief Operating Officer (COO), and a Chief Financial Officer (CFO), all of whomshouldreportdirectlytotheCEO. Appoint an advisory board for each of the business units. These should be appointedonlybytheBoard. Provide three year contracts with specific targets for all key management teammembers(estimatedaround3050)withrestrictedstockoptionsand/ orrelatedincentivestodeliverincreasingprofitsandgrowth.

1.1.

1.2.

1.3.

1.4.

1.5.

1.6.

1.7. 2.0

Complete the organization restructuring process currently underway to establish four independent business units for Fixed access, Mobility, Enterprise and New businesses with due clarity and coordination to avoid duplication of efforts and for efficient use of resources related to network, human resource, other facilities and services. Empower independent business unit heads to act as fast as the competition. 3..

3 3.0. Improveorganizationperformanceandemployeeproductivitysubstantially. 3.1. 3.2. 3.3. 3.4. 4.0. Retireortransferaround100Kemployeesthroughbestpossibleprocesses likeVRS. Instituteaperformancedrivenculturetocreateameritocraticorganization. CompleteITSabsorptionprocessimmediately. Induct significant young talent in technology, IT, Marketing, Customer Services,Salesetc.,

Change procurement processes and procedures substantially to respond to rapidly changingtechnologyandindustryneedswithnecessarytransparencytimelinessand accountability using tools such as EProcurement, vendor rating, rate running contracts, schedules etc., to reduce reasonable delays and to avoid legal conflicts. However,togaincostadvantageandobviatetechnologyrisks,BSNLshouldfocuson minimizingthecapitalexpenditurebyproactivelyseekingandadoptingservicelegal agreement(SLA)boundsharedsolutions,foractiveandpassiveinfrastructureneeds. Simultaneously,toremaincompetitiveincostandqualitydeliveryBSNLshouldadopt a managed service model for many of its operations e.g., Operations relating to network, IT, Call Centers etc. To ensure this carry out special consultations on a priority basis with the Chief Vigilance Commissioner, keeping in mind the special circumstancesofahighlycompetitiveTelecomSectorGovernmentCompany. Enhance business operations by building special expertise in marketing, sales, distribution, customer service, billing, revenue assurance, quality assurance, service provisioning, network management, network planning, fault management etc. Simultaneously, manage cost aggressively. Take urgently, special initiatives to enhance the quality of service by empowering employee at all levels to focus on customer orientation and customer satisfaction. Improvement in customer satisfactionindextobepartoftheannualplanandperformancematrix. Disinvest30%instagesattheappropriatetime,sayafterfundamentalchangeshave been made to enhance enterprise value, through Indian strategic investor and at Initial Public Officering (IPO) to return 10% to the Government and use 20% got employeeVRS,expansionandoperation.Furtherdisinvestmentcouldbeconsidered afteradetailedperformancereviewinthreeyearstime.

5.0.

6.0.

7.0. Explore new markets and applications related to Enterprise, Government, Defense, Education,Health,Agriculture,Energy,Judiciary,Newgreenfieldcities,Transportation, Security,Safety,Police,DisasterManagement,Fibertohome(FTTH)etc.Createviable business models in these areas by collaborating with relevant expert organizations to makejointofferings. 4..

4 8.0. Provide 30 million new high speed broadband connections in the next 3 years with relevant and useful applications and content in local languages and significantly improvequalityofserviceandconsiderofferingservicelevelguaranteetowintrust. Invest in building a financially remunerative next generation end to end national IP Networkofthefuturetohandleeverincreasinginternetanddatatraffic. Unbundlelocalloopforpublicandprivatecompaniestolaunchnewservicesonnon executivebasiswithcaretopreventcannibalization. Exploit BSNLs unique positioning of infra led biggest food print in rural India by creatingadditionalrevenuestreamsforruralinfrastructureandcapabilities. 11.1. Proactively offer sharing of active and passive infrastructure to other operators to generate attractive returns and ensure non cannibalization of BSNLcustomersbyseekingcompliancewithappropriateconditions.Shared servicesmayincludeintracircleroaming,rentingofcapacitiesonactiveand passiveinfrastructureetc. Enhance and expedite rural communication facilities, services and applications by connecting 2,50,000 panchayats and integrating various government flagship programmes targeted at rural development through NREGA, Rural Health Mission, Food Distribution, PDS, etc. to augment the inclusivegrowthagendaoftheGovernment.

9.0. 10.0 11.0.

11.2.

12.0.

ImplementimmediatelyendtoendITsystemsandsolutions(ERP,CRMetc.)forall key business processes in all business units with a focus on Finance, Billing, Human Resource, Customer Service, Network Management, Sales, Marketing, Project Management,Trainingetc. Createaseparatesubsidiarycompanyfortowerrelatedinfrastructuretoaggressively market to other public and private sector customers and unlock whole/substantial potential value through strategic stake sale, M&A or separate IPO. Explore possibilitiesofmonetizingothersuchsubsystemse.g.,interconnectoperations. Create a separate subsidiary to hold undeveloped land bank and other real estate assets (estimated to be over 2.5 Million square metersof vacant landin sevenkey cities)andalargenumberofunutilizedstaffquarters,etc.Monetisethevalueofthis subsidiary by collaborating with a reputed and experienced real estate related companyintransparentmanner.

13.0.

14.0.

15.0. EstablishaBSNLventurefundtoinvestand/oracquiresmallappropriatetechnology companieswithstrategicvaluestoencouragelocalinnovation,localmanufacturingand newbusinessopportunities. 5..

5 Please note that there are substantial details available on each of the above recommendationsforfurtherfollowup. It is suggested that these recommendations be implemented urgently in a mission mode with a dedicated team of three leading executives (MD/CEO, COO, CFO) with a detailed roadmap on each and every item specific time table, dedicated financial and human resources and measurable milestones to return BSNL to profitability, growth and a leadershippositionintheglobaltelecommarket. Thecommitteewouldbehappytoguidetheimplementationprocess. SamPitroda DeepakParekh PJThomas AdvisortothePrimeMinisterChairmanHDFCLtd., Secretary InformationInfrastructureand Dept.ofTelecommunications Innovations andChairman, TelecomCommission